California Governor Jerry Brown recently signed the California Fair Pay Act (CFPA) into law to close the wage gap between men and women. The new law imposes tough new standards and strengthens California’s existing equal pay law, while making it significantly easier for employees to demonstrate unequal pay.

The "substantially similar" standard

California’s existing equal pay law prevents employers from paying employees of one gender less than employees of the opposite sex for “equal work” on jobs the performance of which requires “equal skill, effort, and responsibility", and which are “performed under similar working conditions” “in the same establishment". With effect from 1 January 2016, the CFPA eliminates the "same establishment" requirement and significantly expands the concept of “equal work” to “substantially similar work, when viewed as a composite of skill, effort, and responsibility", subject to certain exceptions.

Narrowed defenses to claims

Existing law allows an employer accused of an equal pay violation to raise an affirmative defense based on:

  • a seniority system;
  • a merit system;
  • a system that measures earnings by quantity or quality of productions; or
  • a bona fide factor other than sex.

The CFPA narrows and clarifies these exceptions.  For example, the CFPA provides that the “bona fide factor other than sex” exception shall apply only if the employer demonstrates that the factor is:

  • not based on or derived from a sex-based differential in compensation;
  • job related with respect to the position in question; and
  • is consistent with a business necessity.

The CFPA strictly defines "business necessity" as an "overriding legitimate business purpose". This is a significantly narrower definition then established by the Supreme Court in Griggs v Duke Power Co in 1971. The Court in Griggs defined “business necessity” as something "related to job performance". An employee may rebut this affirmative defense by showing that an alternative business practice would serve the same business purpose.

Longer records retention requirement

Employers must currently maintain records of the wages and wage rates, job classifications, and other terms and conditions of employment of employees for two years.  The CFPA extends this records retention requirement for an additional year, to three years.

Anti-retaliation and disclosure provision

The CFPA creates a new cause of action for employees to bring civil actions if they experience discrimination or retaliation for exercising CFPA rights. The law also prohibits employers from preventing employees from discussing or disclosing their own wages or inquiring about another employee’s wages. However, the law also provides that nothing creates an obligation to disclose wages.

The CFPA is arguably the strongest equal pay law in the United States, and other states are likely to follow California’s lead by enacting similar legislation. Employers should review their current pay scales and consider adopting an analytical framework to standardize pay based on a job title and seniority. Reliance on different job titles alone may not be sufficient to justify wage differentials. Employers should also document any salary or bonus requirements, and ensure that their record retention policies comply with the new law. Moreover, employers should review their confidentiality policies to make sure they comply with the CFPA’s new disclosure provision.